Lloyds Banking Group (LON:LLOY) emerged as one of the worst performers as the Bank of England (BoE) published the results from its annual stress test. The bailed-out lender, however, passed the health check and is not required to submit a revised capital plan.
Lloyds’ share price was little changed in the previous session, inching 0.09 percent lower to close at 56.34p, fractionally outperforming the broader UK market. This morning, the lender’s shares have advanced, having gained 0.55 percent to 56.65p of 08:10 GMT, as compared with a 0.44-percent rise in the Footsie.
Lloyds passes stress test
The BoE announced the results from its latest stress test yesterday, saying that they showed that the UK’s banking system was “resilient to deep simultaneous recessions in the UK and global economies”. The health check further showed that British lenders would be strong enough to withstand a disorderly Brexit.
All seven financial institutions passed the test, which included a rise in unemployment, as well as steep falls in the UK’s gross domestic product as well as in the country’s property prices. The test result showed that Lloyds’ capital position stood above its CET1 ratio hurdle rate of 8.5 percent and Tier 1 leverage ratio hurdle rate of 3.79 percent in the hypothetical stress scenario with a low point of 9.3 percent CET1 ratio and 4.5 percent leverage ratio in 2019 after ‘strategic’ management actions.
The Financial Times said in its coverage of the news that Lloyds was ‘at the bottom of the pack,’ due to its “largely UK centric business model”, which left it more exposed to falling house prices and higher unemployment.
Analysts weigh in on result
Proactive Investors quoted Filippo Alloatti, senior credit analyst at Hermes Investment Management, as commenting that Lloyds was the bank most at risk in the test, “given the size of its £300-billion+ mortgage book as well as the introduction of the Systemic Risk Buffer”.
The analyst, however, concluded that “ultimately, banks are in a far stronger position than they were 10 years ago, are more attractive from a credit standpoint and no longer pose the risk to financial stability that they once did”.